Amazon.com, Inc. (NASDAQ:AMZN) is always looking for growth opportunities. And there is a big prize to be won in the medical market. According to a report from Bloomberg, the company is currently in talks with medical providers to start up an Amazon health service that would supply basic supplies like bandages and latex gloves.
The move would gain a foothold in a very lucrative market, setting Amazon up for much bigger opportunities that could power AMZN stock growth.
Amazon Health Initiative Aims to Disrupt Medical Supply Chain
Amazon has been so successful because it disrupts established — and often inefficient — ways of doing things. AMZN stock has been propelled by the company’s disruption of everything from the book business, to retailing in general, consumer electronics, data centers and grocery shopping. Most recently, the company opened its store of the future, a brick-and-mortar shop with no cashiers, no lineups and no checkouts whatsoever.
According to a report from Bloomberg, the next target of disruption could be an Amazon health service. Bloomberg’s sources say that Amazon reps have been meeting with large hospitals, doctors offices and outpatient clinics.
The company is pitching itself as a source of basic, disposable medical supplies including bandages, latex gloves and sutures. The appeal of ordering from Amazon instead of going through traditional suppliers would be price — always a big part of the Amazon allure — ease of ordering and fast delivery. The Amazon model could also make it possible for clinics to order disposable products like bandages and have them shipped directly to a patient’s home, or even have the patients order them instead.
According to Bloomberg, negotiations for the proposed Amazon health service have been going on with some health care providers for the past year.
The company needs to overcome a number of obstacles in order to convince the industry to begin signing on. For one, this an established business, so Amazon needs to win over customers from established companies like Henry Schein, Inc. (NASDAQ:HSIC), a Fortune 500 company that specializes in medical supply distribution. Hospitals and health services traditionally buy supplies based on contracts, not an on-demand basis. And there would need to be a consistency in Amazon health products to facilitate ordering.
A Foot in the Doorway
The disposable medical supplies business may not sound exciting, but the Amazon health initiative has the potential to boost the company’s bottom line. The global market for medical tape and bandages alone is projected to be worth $10.97 billion by 2025. in comparison, the smart speaker market — which Amazon has been dominating with its Echo lineup — is expected to hit $11.79 billion by 2023.
So, selling bandages could contribute to Amazon growth in a meaningful way. But the real prize would be the relationship with healthcare providers. Disposable supplies like latex gloves are commodity products that aren’t regulated. They are a relatively easy entry for the company to get in the door and win over healthcare providers. Once in, it could prepare to offer a more advanced Amazon medical product line. In time, that could mean Amazon supplies drugs and medical devices to hospitals.
The overall medical supplies market — including more regulated products like hypodermic needles and dialysis supplies — is expected to top $136 billion by 2021. That’s a huge market and grabbing a chunk of it would be a big boost to AMZN stock. The there’s the potential for a relationship with healthcare providers helping Amazon’s expected entry into selling prescription drugs. In 2015, U.S. pharmacies and drugstores did over $263 billion in business.
The big picture gets really big, fast. An Amazon health program that sells bandages to medical services may not sound earth shattering, but disrupting this business could be the start of a massive new line of business for the online retailer.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.